Pfizer (NYSE: PFE) announced a $14 billion deal to acquire cancer drug developer Medivation (NasdaqGS: MDVN), propelling the broader biotechnology exchange traded funds higher on speculation of more deals in the sector.
Biopharmaceutical giant Pfizer will pay Medivation shareholders $81.5 per share in cash, or a 21% markup to Medivation’s closing price on Friday of $67.16 per share.
At last check Monday, MDVN was up 19.8% to $80.4 per share while PFE was down 0.5% to $34.8.
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Other companies, including Sanofi SA, Gilead (NasdaqGS: GILD), Celgene (NasdaqGS: CELG) and Merck (NYSE: MRK), have also shown interest in acquiring Medivation, reports Meg Tirrell for CNBC. This suggests that large biotech companies still have a lot of cash on hand and may be shopping around to expand their businesses.
“We know that Sanofi had been aggressively pursuing Medivation and whilst some may be relieved to see it not pay for this particular deal, investors will now begin to look for alternative targets for them,” Jefferies analyst Jeffrey Holford said in a note. “Many investors that speak to us believe that this could include BioMarin.”
[related_stories]Meanwhile, Regeneron Pharmaceuticals (NasdaqGS: REGN) was up 3.8%, Incyte Corp (NasdaqGS: INCY) was 6.7% higher and Biomarin Pharmaceutical (NasdaqGS: BMRN) rose 6.2% on Monday. The companies were seen as potential targets of takeover speculation.
“It would make sense that the Medivation price tag would boost Incyte (another mid-cap oncology company),” Cowen analyst Eric Schmidt said in a note. “The others … are very different beasts, so there shouldn’t be any read-through.”
While investors can bet on single plays, a broad biotech ETF may help investors better diversify into the biotech sector. In an environment of greater merger and acquisitions activity, investors may look to biotech ETFs that target mid- and small-cap companies that may be potential targets down the road.
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For instance, the BioShares Biotechnology Clinical Trials Fund (NasdaqGM: BBC) tracks potential up-and-coming biotechnology companies that are in the clinical trials stage.
The Loncar Cancer Immunotheraphy ETF (NasdaqGM: CNCR) tracks companies that are developing new classes of therapies.
The ALPS Medical Breakthroughs ETF (NYSEArca: SBIO) focuses on small- and mid-cap companies that have one or more drugs in either Phase II or Phase III U.S. FDA clinical trials.
The PowerShares Dynamic Biotech & Genome (NYSEArca:PBE) included U.S. biotech and genome companies that are engaged in the research, development, manufacture and marketing and distribution of various biotechnological products, services and processes and companies that benefit significantly from scientific and technological advances in biotechnology and genetic engineering and research.
The broader SPDR S&P Biotech ETF (NYSEArca: XBI) follows an equal-weight index of biotechnology companies, with 19.2% in micro-caps, 34.8% small-caps and 26.8% mid-caps.
For more information on the biotech sector, visit our biotechnology category.